The North Bay Business Journal published an article last week on American wine producers’ and exporters’ burgeoning wine sales to Chinese distributors, entitled, “For wineries, China presents obstacles along with opportunity.” [link no longer exists] The article highlights some of the same issues we addressed in two earlier posts, China: Get Thee to a Winery and China: Get Thee to a Winery, Part II, such as the difficulty of finding paying buyers and having to fight off fakes (read this article on China’s own illegally watered down Two Yuan Chuck). Beyond this though, the article provides very good general business information for those doing business in China, mostly by extensively quoting Jonathan Lemberg, “an expert in doing wine business in China.”

Mr. Lemberg correctly notes how Americans and Chinese tend to view contracts differently:

In the United States, a contract is viewed as binding and it’s expected that you do what the document says. Many vintners find that Chinese counter-parties will take a contract as a starting point for future negotiations as opposed to an obligation.

He then recommends talking for trying to get around this difference:

The point is, if your Chinese counter-party doesn’t understand a particular provision, even if it’s an important, boilerplate provision, they might say, “We never really talked about that.” But if you come to an oral agreement on an issue, they’re much more likely to see a moral and legal obligation to perform on it.

Good idea.

Mr. Lemberg goes on to rightly emphasize the importance of registering your trademark in China:

Trademarks and labels are another potential danger zone, he said. China has a “first to file” type of jurisdiction, where it’s easy for locals to apply for, and be awarded, the trademarks and names of foreign companies, with the exception of extremely recognizable global brands like Nike or Coca-Cola.

“You need to make certain, for instance, that you have a clear contractual arrangement with distributors, making sure it prohibits them from filing under your trademarked name,” Mr. Lemberg said. “The best protection is to go to China and get a trademark application filed in your own name.”

We strongly agree with Mr. Lemberg’s advice to register your trademarks in China. For more on this, check out our previous posts, China Trademarking, Chinese Watermelons, And Rumors Of HIV Tainting and China’s Trademark Laws — Simple And Effective. However, I disagree with his suggesting a contract with a distributor is a suitable substitute for a trademark, as it is not. The cost to draft a contract with a distributor will likely be close to that of filing for an actual trademark, yet its protections will be far less. The contract will protect you only against the distributor; trademark registration will protect you against everyone in China. Get the trademark EVERY time.

Larry Holman of Cline Cellars in Sonoma, which sells between 400 and 500 cases to China annually, is bullish on China’s wine business:

“It’s a limited wine culture there right now,” he said. “But the economy is booming just like everybody says. It’s phenomenal growth, and I wanted to go over for myself and learn more about the market.”

More good business advice: go there and see for yourself.

  • Dan,
    Not surprising that a wine that is 90 percent cheaper than the competition is crap, though I’ll bet some customers are upset, not unlike those who get upset that they have a raging headache the morning after a 50-kuai, all-you-can-drink cocktail night at the local bar. You (usually) get what you pay for.
    By the way, I recently talked to Don St. Pierre Sr., the founder of ASC Fine Wines, which distributes to 80+ cities in China. A few points, at random, that he made to me:
    – When ASC started in 1996, the company had a tough time getting winemakers to come to China. Now so many companies want ASC to distribute for them in China, and so many winemakers want to come and do tasting events / promotions, ASC can’t even respond to them all.
    – Five or six major distributors already handle the top imported wine brands, making it tough for those entering the distribution business now.
    – Local distributors, he says, have a poor understanding of the imported wine business and tend more toward bulk wine. Reputable wine producers are wary about dealing with such companies. (Don himself is generally wary of ventures with local partners. His most successful partnership to date has been with a foreign company, Austria’s Swarovski, which makes Riedel glasses).
    – The high-end market is seeing massive growth. Overall, the number of potential customers out there and the growing interest in wine means that there will always be people coming into the low-end of the market, and then moving up the quality ladder, he says.
    Cheers, BB

  • boyce —
    I really feel (maybe based too much on personal experience with WA wineries contacting my firm over the years and then doing nothing) that the French and, to a lesser extent, Australia and NZ, have already locked down their positions in China and most American companies are already too late. I qualify all this with the following:
    1. I don’t know wine;
    2. I don’t know the wine business;
    3. The extent of my knowledge of China’s wine business is around ten articles and looking with interest on the menus of Chinese restaurants and on the shelves of Carrefour and other grocery stores in China.
    In other words, go ahead and tell me I have it all wrong.

  • nanheyangrouchuan

    A bottle of Imperial Dynasty will make you appreciate anything over an 85.

  • Going back to my talk with Don St. Pierre, he said French and especially Australian, Chilean and South African wines represent a growing portion of ASC’s sales, while Italy is holding steady and the U.S. is declining. The point is things are in flux and there are any number of factors that could cause further and bigger shifts in market shares. What happens when Chinese REALLY start drinking wine, I mean in terms of volume, since consumption is very low per person right now. What happens when Chinese wines get good enough to challenge foreign imports, especially the lower-end ones – which countries will that hurt? What happens if the renminbi goes 4 to the dollar?
    Anyway, I’m not an expert, but I’d like to be one, so I’m off to share a few bottles with my friends, all in the name of education…

  • PiPi

    As long as they keep putting coke and ice cubes in their wine, this market’s not going anywhere fast 🙂
    The best thing that we can hope to see is a reduction of the extremely high import duties on wine that keep prices here about twice what we’d expect to pay back home. There’s barely a bottle of wine worth drinking below RMB140, especially among the reds. I’m a wine drinker and life’s too short to drink crap.
    PS – I fly to San Francisco tomorrow for 2 weeks – how much good wine do you think I’ll be drinking soon 😀

  • Boyce —
    So what you are saying is that the US is falling behind, but it might not be too late.
    Education is important.

  • nanheyangrouchuan —
    Those who know (i.e., my little brother) tell me that a 9 dollar bottle of Changyu wine tastes like a 10 dollar bottle of US wine.

  • PiPi —
    $18 a bottle ought to get you plenty of good wine in SFO.

  • I previously mentioned that some Chinese wines are offering decent value. 2005 Grace Cabernet Sauvignon retails for RMB60/USD8, and my first taste of it was at the Ritz Carlton, no less.
    “Har, har” jokes about Chinese wines are to be expected, after all, people laughed at New Zealand, Australian, and other New World wines not so long ago.
    CLB, re US share in the market, all I know is that at ASC, which is a top distributor, the share of U.S. wines the company sells is declining. But who knows what will happen? Did anyone predict that green tea and whiskey would be such a huge hit? Maybe we need to popularize mixing that USD100 bottle of Phelps Cabernet Sauvignon with some hawthorne juice…

  • boyce —
    Good point about the tendency to mock newbies. They did the same with Northwest wines for a while also.
    I went to law school in Indiana and its wines are also mocked. Wait a second, they are mocked for a reason: they are terrible and I am not just saying it because one of the tax professors had one of the best known labels and I hated tax.

  • PiPi

    Boyce, I’m certainly not making ‘har har jokes’ about Chinese wines. It is what it is and you get what you pay for. I’m happy (hmm, maybe not) to drink Chinese wine with Chinese food – but that’s only because at most Chinese restaurants, that’s all they sell and besides, I wouldn’t waste a good bottle of imported wine on Chinese food. Why just last night i took 25 of my staff to dinner and we polished of a whole case of Changyu and about 2 bottles of that was down my throat. However, I felt like crap this morning, but what do I expect.
    The best of the Chinese are still very basic run of the mill wines with zero depth and even less subtlety and very little character. It’ll be many years of vine growth before there’s a Chinese wine worth putting on a table with anything more than Chinese food, perhaps Indian tandoori or bbq burgers. It’ll be even more years before we see a world class wine out of China – but I do believe they will get there eventually, they have to. They will have a hard job exporting it volume though – just as central european countries do. It’s all about image and wine is all about image.

  • PiPi —
    You are right about the image thing and that is why I think the longer American wineries dally about going into China, the tougher it will be for them. There is no image in China of American wines.

  • “The best of the Chinese are still very basic run of the mill wines with zero depth and even less subtlety and very little character.”
    Pipi,
    Would you let me know the names of the Chinese wines that you consider the best?
    Cheers, BB

  • nanheyangrouchuan

    Once in a while you may run across a decent chinese wine due to a lucky convergence of the right climate, soil and access to clean water.
    Now I’ll paste this link:
    http://www.iht.com/articles/ap/2007/02/06/america/NA-GEN-US-Climate-Change.php
    I’ve always had nasty headaches the next morning when drinking booze in China. The foreign stuff sits in the FTZs for months and when you order a mixed drink at any bar less than Malones or Long Bar you often get a dose of tap water to give the appearance of a full glass. Yeah, tap water.
    And the Chinese again have a problem with patience. The soil takes years and years to get conditioned, but for prestige that wine must be a 91 pointer RIGHT NOW!
    Then there is quality of the ground water the grapes drink up, which is generally bad and only going to get worse. Unless provincial govt’s and Beijing want to pony up a ton of money to treat irrgation water.

  • Boyce —
    PiPi?

  • PiPi

    Boyce – you mean the best of a bad bunch? Because there’s none that I consider good. Even your recommended Catai is not worthy of anything else than quaffing. (got to admit I’ve never tried Grace although I’ve seen it on the shelfs). In saying that, the Chinese make better reds than whites. It’s comparatively easy to make a drinkable red wine but they are no where near making a drinkable white. When I get back to China in a couple of weeks I’ll buy a bottle of Grace CS – that way I’ll be able to give a better comparison having just come back from Napa and Sonoma. The problem being that some people who bee here too long with out a break adjust there ‘tastes’ and expectations of quality without even knowing it, and it’s only when you go out of China and taste real beer, food, wine and service that you realise how bad it can be in China. I’ve been there as well though and I recognise it. Tsingtao beer for example will never pass my lips again because it is pure swill and after having drank a lot of it when I first cam to China, after going back to Europe and tasting real beer I realised how bad Tsingtao actually is.

  • Fongyee

    [wonderful blog, by the way – I am trying to read my way through it to catch up!]
    As a recent arrival (after an absence of twn years), I haven’t had the chance to try a wide range of the Chinese wines presently on the market, but I can add that in London, last November, Jancis Robinson presented a Masterclass on ‘Truly 21st C wines’ which included a Grace Bordeaux blend 2004. Although the least favourite wine of the class, it still garnered praise. I myself have presented Grace and Huadong wines blind at a few tastings in the UK (after lugging them back from here) and people are pleasantly surprised at the quality. Most guess that they are mid-level french wines, by their style and level of ripeness (in fact, Huadong’s chardonnay vines actually come directly from the Maconnais).
    One thing is certain: that China is a buzz-word amongst European wineries in a big way (particularly in Bordeaux!), but very very few have the knowledge, insight and understanding to carry out any real significant savvy marketing here. As a judge at last year’s Shanghai Wine Challenge, I found it interesting to speak with people- all desperate to import wine to China-who had little or no experience of here.
    As you say, “go see for yourself”!

  • PiPi —
    Life is good.

  • Fongyee —
    Thanks for checking in and thanks for the kudos. Always appreciated.
    It is good to hear that the Europeans seem almost as paralyzed as the Americans. As I have mentioned previously, no fewer than three decent sized American vinters contacted my law firm about China and all three of them gave up the idea after realizing they would need to do more than just line up a distributer there and ship over bottles.
    The wine market is pretty much flat in the US and I am guessing the same is true of Europe. China’s market is said to be increasing at nearly 15% a year and we all know that the leaders there five years from now are going to be the ones who are either there now or going there very soon. At some point, a few brands will have the names in China and they will become the Prada of the industry. I just know it.
    On the flip side, I tried to interest a wine distributer I know slightly to consider importing Chinese wines into the states for Chinese restaurants here. He looked at me like I had two heads. What about that side of things? Sort of a novelty item like Tsingtao Beer?

  • “Boyce – you mean the best of a bad bunch?”
    Pipi, however you want to put it. Catai has more than one varietal – Cabernet Sauvignon, Merlot, Chardonnay – and has reserve wines. Curious as at to which one(s) you tried?
    Fongyee, great anecdoates about Chinese wines in Europe. When I arrived in China, it was with a foul taste in my mouth – some horrible Great Wall I had on the plane. Since then, I’ve talked to a lot of wine industry people and several sommeliers. I’ve come to like a number of Chinese wines and am keen for more exploring. I’m planning a few tastings of Chinese wines here in Beijing and hope to get to a few wineries over the next few months.
    Cheers!

  • Boyce —
    What wineries are you hoping to visit?

  • CLB,
    Hoping to get to Taillan and maybe this “Sino-French Demonstration Vineyard.” I’ve got lots of free time during the holidays, but I’m not sure if these places will even be open.
    Also looking into a trip to Grace during the next few months.
    Cheers, Jim

  • Boyce — Please let me know how it goes. The Changyu winery (I think it is this one) looks beautiful on the bottle and since I occasionally find myself in the Qingdao/Yantai area, I was hoping to get there some day.
    Is visiting wineries done in China, with the tastings and all?

  • CLB,
    I’ll let you know how it goes. My one and only winery visit in China was to Taillan. Frank Siegel of Frank’s Place, John Bull Pub, and Sequoia Cafe fame, organized a bus and took us there. We toured the winery and the bottling facilities, then sat down to a picnic lunch / wine tasting.
    As for Grace, the tour details I’ve received include flying to Taillan, having lunch (a traditional Shanxi meal), touring the winery and doing a wine tasting, having dinner, and then staying overnight, before heading off for a tour of “Pingyao Ancient city” and returning to Beijing. Total cost is around 1000 kuai, excluding the flight.
    By the way, another place I hope to visit is this replica of Chateau Lafitte, just outside Beijing, if only because it seems to bizarre:
    http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2005/10/27/wchin27.xml&sSheet=/news/2005/10/27/ixworld.html
    Cheers, BB

  • boyce —
    How much does that place run per night? I am guessing it is not cheap.

  • jojo

    It’s fortunate that an associate of mine introduced me to this forum. Interesting strings. I am currently clearing “Chinese” (we prefer to call it ‘Sino-French’) wine for sale and distrubtion into the United States. The sampling we have done over the past 6 months has rendered a better than 98% acceptance rating on a sample population of more than 500. Overall — it was well received. In blind tastings, even the staunchest American wine snob could not tell the difference between Sino-French and well-noted Australian. You get what you pay for, aye?

  • jojo —
    Thanks for checking in and thanks for the compliments. I hope you have read some of my other posts on wine, including the ones (maybe in the comments) where I talk about my younger brother’s take on Chinese wines (he’s the wine expert in my family) and my calling for importing these wines into the US.
    I am glad to hear of your efforts and I wish you nothing but the best. I think you are both timely in this and ahead of the curve, both of which ought to serve you in good stead.
    If you ever wish to write a guest post on your escapades, I would love to run it.

  • jojo

    CLB —
    We are fortunate to have been given the opportunity to introduce these product lines and pleased to have discovered this blog as well. I’m sure there will be some very interesting discussions to follow.
    The email address has been routed to the personal box rather than the business until regulatory and compliance matters are completed. This is highly likely to occur before the end of 1Q 2007.
    Respects to all,
    double jo

  • Jojo —
    Sounds good. Will you send me a bottle when it all starts “flowing?”

  • jojo

    CLB — Certainly, arrangements will be made.

  • jojo

    CLB —
    Well … we’re half way through 2Q 2007 and I’ve learned to accept that our Chinese counterparts will move are their own pace, howsoever.
    This is not an entirely bad thing, but the American consumer market clicks at a pretty fast pace. U.S. federal regulators have substantially cleared the underlying filings and the finals are positioned for when the product is ready to ship. The order is placed, and customers are prepared. Logistics are being finalized as well.
    We should share some information for sampling purposes, aye?
    jojo

  • Hi Dan,
    Back with more for this thread – I just can’t let it wither away!
    1. Decanter magazine has named Don St. Pierre Jr (based in Shanghai) of ASC Fine Wines to its 2007 Power list, along with heavyweights, such as Robert Parker, Angelo Gaja, Miguel Torres, etc. The list includes those that the magazine thinks most influence what we are and what we will be drinking. He’s the only China-based person on the list (and only one of three in Asia) but it underscores the growing importance of this market.
    2. I’ve only gone on one winery visit, but do plan to check out a few spots over the summer and will let you know of anything interesting.
    3. Due to your blog, I ended up meeting with Fongyee (who posted to this thread) and her husband, and since then we’ve all been to about a half-dozen wine tastings together in Beijing.
    Cheers, Boyce

  • Boyce —
    1. Interesting. Makes sense.
    2. Sounds like fun. Let me know.
    3. That’s great. Glad to be of service!
    I have seen a number of articles extolling Changyu, not so much for its wines, but the fine job the company itself seems to be doing in building up its brand.

  • jojo

    CLB:
    Sorry for the long delay in getting back to the blog. It took a bit for me to scroll through the list and find it, but alas!
    Details have finally been worked-out and the Dynasty Winery has appointed our company as the exclusive importer and supplier of their products in the United States. The actual “first” shipment of cleared product will arrive in late October or early November … about 60,000 bottles initially.
    Things are heating-up, and it appears the fear of Chinoise food product stateside has been addressed well enough on the ditributor level since the water sources for Dynasty passed testing very well. Likewise, the wine analysis labs in the US graded 4 of 7 products tested as “acceptable” with some very complementary narratives.
    Soon I will be able to tell you where you can obtian in the US the offical wine and brandy of the PRC.
    Respects,
    jojo